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NOVATEK Could Start Drilling In Egypt By End 2009

ST. PETERSBURG, Russia, June 9 (Interfax) - NOVATEK (RTS: NVTK) might start exploratory drilling at the El Arish offshore prospect in Egypt at the end of this year or early 2010.

"We should finish interpreting seismic data in September-October and then be able to locate the first drill. Drilling could commence late this year or early next year," Leonid Mikhelson, the gas producer's chief executive, told Interfax.

A tender to find a contractor for the drilling could be called in the next three or four months.

Mikhelson said that once seismic data had been processed it would be possible to "estimate reserves and, after at least one well has been drilled, how economically viable these reserve are."

He also said NOVATEK was thinking of involvement in other projects in North Africa and in Syria.

"We're looking at gas projects above all, prioritizing fields that have not been subject to much exploration and which are not yet in production," he said.

NOVATEK received 50% of the concession to explore and produce hydrocarbons at El Arish in September 2007. Tharwa Petroleum S.A.E. holds the other 50%. NOVATEK plans to invest $40 million in the project over four years.

The El-Arish block is located in the Mediterranean Sea off the northern coast of the Sinai. The block covers an area of about 2,300 square kilometers. About half of the block is located in waters less than 50 meters deep. The maximum water depth in the concession territory is 500 meters.

Mikhelson also said NOVATEK could round off talks with France's Total on a joint project in the Yamal-Nenets autonomous district within a month.

"Then talks are ongoing and might be concluded in a month," he said.

Asked whether NOVATEK wanted to involve Total in the South Tambey project Mikhelson said: "We had the Yamal-Nenets district in mind, not the Yamal Peninsula."

NOVATEK completed the purchase of a 51% stake in Yamal LNG, which holds the license to the South Tambey (Yuzhno-Tambeyskoye) gas condensate field, which is on the Yamal Peninsula, in a $650-million deal on June 4.

The shares were purchased from three firms affiliated with Gennady Timchenko's Volga Resources Fund. The C1+C2 resource at South Tambey amounts to 1.256 trillion cubic meters of gas and 52 million tonnes of condensate.

Mikhelson said NOVATEK was inclined to build a liquefied gas plant at the South Tambey field rather than a pipeline to transport the gas.

"An LNG project would of course take longer and require more investment, but as things are looking today it is still preferable. It gives us room to maneuver in marketing and the opportunity to supply gas to the American and European markets," he said.

"It is also hard to say right now how long it might take to build a pipeline system from the Yamal," Mikhelson said. He said it could take five years to build an LNG plant. He did not say how much might be invested, but he did say investment would be "substantial."

Mikhelson said earlier that NOVATEK was mulling a combined pipeline gas and LNG project at South Tambey.

Asked whether oil and gas sector engineering construction firm Stroytransgaz might be involved in the South Tambey project, Mikhelson said: "We hire all contractors and suppliers by tender, and if Stroytransgaz wants to bid at a tender and offers competitive terms, then we'll consider them. There are no other options."

A representative of Gennady Timchenko's Volga Resources told Interfax on June 1 that firms associated with Timchenko had consolidated 79.6% of Stroytransgaz.

Mikhelson said the third phase of the Yurkharovskoye field should be brought on stream by the end of this year, and that NOVATEK would channel 70%-80% of this year's planned 20 billion rubles capex into the project.

"We've managed to agree on lower prices with contractors and suppliers. We'll be working as scheduled, but with less money," Mikhelson said.

A condensate pipeline from Yurkharovskoye, costing 10 billion rubles, should go into service in the first quarter of 2010, Mikhelson

said.

The Yurkharovskoye field is located within the Arctic Circle southeast of the Tazovsky peninsula. The field is licensed to NOVATEK-Yurkharovneftegas, and has been producing natural gas and gas condensate since 2003.

NOVATEK commissioned the second phase of the Yurkharovskoye field in September last year. The third phase's projected capacity is more than 7 billion cubic meters of gas per year.

The field's proven (SEC) reserves amount to 312 bcm of natural gas and 15 million tons of liquid hydrocarbons. In 2008, the field produced 11.71 bcm of natural gas and 895,000 tonnes of gas condensate. The Yurkharovskoye field is the largest of NOVATEK's core fields in terms of reserves and the company sees it as the cornerstone of its mid-term production-growth strategy.

In general, Mikhelson said he was not expecting the Russian gas market to recover to pre-crisis levels this side of 2011.

"I think it'll take a couple of years, and demand might recover in 2011-2012. Let's hope so," he said. (END/2009)